Unit 3 - Background & Issues

This week we shall go over the texts of (1) the 1947 General Agreement on Tariffs and Trade, (2) the 1994 General Agreement on Trade in Services (GATS), and (3) the current structure of the 1994 WTO subsidiary agreement(s) as a way of getting you to focus on some of the basic principles taken as a whole.  The 1947 GATT, as modified in a technical sense by the 1994 GATT, represents the current law.  But the 1994 GATT as part of the 1994 WTO treaty is basically only a short list of changes and specific interpretations made to the 1947 GATT, so that the 1994 GATT document just reads like a shopping list.  The self-contained 1947 GATT presents a more coherent overview, subject to the idea that you have to consult the 1994 GATT for specific changes (which are often in the form of binding interpretations of the 1947 GATT language articulated 1950-1990, rather than “new” language).  We shall return repeatedly to these agreements for a more detailed view of individual provisions throughout the semester.  Today I want you to understand more in structural terms how the GATT and GATS work as a whole as legal documents (specialized international economic law agreements as a matter of public international law).  We shall also look quickly at the difference between NAFTA 1.0 and NAFTA 2.0 (or USMCA) Chapter 11 language to map the changes on dispute resolution.

In a technical sense, the GATS might be considered as just a newer subsidiary WTO agreement.  However, the GATS is better understood as extending the scope of trade liberalization efforts now to services (since the 1947 GATT formally addresses trade liberalization of goods only, and even there its coverage was spotty in the sense that liberalization of agricultural goods was for the most part excluded).  So the best way to read the GATS is against the GATT itself, asking what it is about services as compared to goods that may require both similar and differing approaches in the texts?  On the other hand, most of the subsidiary agreements really address with greater specificity the very open-ended standards in the 1947 GATT itself.  So, for example, the 1947 GATT Agreement in Article XX(b) provides a general exception to GATT obligations in order to enable member states to promulgate national regulations “necessary to protect human, animal or plant life or health….”  But you then have to go one level down into the WTO subsidiary agreements in the form of the Agreement on Sanitary and Phytosanitary Standards (SPS Agreement, viewed as science-based) to understand the detailed standards for permissible regulation of food safety, or the Technical Barriers to Trade  Agreement (TBT, viewed as more commercially-based, subject to nefarious intent issues with facially neutral regulations) addressing permissible regulation generally.  So if you are working a problem involving review of whether a national law or regulation is compatible with GATT or GATS standards, understand that you typically have to look at least at two levels of legal documents.  The first is typically the general treaty provisions as under the GATT or GATS, but then also the subsidiary agreements like the SPS or TBT Agreements essentially as a gloss on the broadly worded, overarching treaty provisions.  And you still may not be finished with the analysis, for example with the TBT Agreement in “bad intent” cases.  So think of us here as just trying to educate you on where to look for substantive law in the WTO framework, rather than addressing any specific issue.

Does how you resolve disputes affect substantive law principles, such as you see in the various agreements?  The issue concerning dispute resolution ties into two different concerns.  One involves the on-going US challenge to the WTO dispute settlement body involving state to state proceedings during the Trump Administration in refusing to name replacement appellate arbitrators as current members came to the end of their term.  Beyond formal details, this presented a challenge to the post-1994 WTO rule-based trade law system, essentially trying to “dejudicialize” the system for interpretation of the GATT/WTO agreements, and might move dispute resolution back into the realm of economic diplomacy as a general matter (as was the case pre-1994 under the GATT).  The traditional rule was that states could assert economic or diplomatic pressure to befit their own nationals via a practice referred to as "diplomatic protection," but if states could engage in dispute resolution to inteprete the economic agreements directly, in theory they could resolve treaty issues generally and not worry about individual cases.  The practical issue, however, was that diplomatic protection was a right of the state whose national claimed legal injury, not a right of the individual, so that the state had the right but not the obligation to intervene on behalf of its national.  From the client viewpoint, what if it chose not to intervene?

The second concern involves displacing the concept of investor-state arbitration that had grown up since the 1990s under bilateral investment treaties and FTAs, in which the tradition of corporate or individual investors seeking (optional) diplomatic protection by their state of nationality gave way under treaty law to direct investor-state arbitration controlled by the corporate or individual investors.  Investor-state arbitration by treaty moved control of the dispute in question to the national claiming injury to investment rights (aka clients), eliminating the right that their state might choose not to assert the claim (perhaps because at a state to state level, they had bigger fish to fry in multiple areas, and so were willing to make trade-offs).

Both dejudicialization of WTO disputes and eliminating investor-state arbitration rights move control back to the state level, and away importantly from the private sector in the FTA context.  As example, developments occurred under NAFTA 2.0 or USMCA resulting in changes to what is referred to as its Chapter 11 on investment protections eliminating a broad swath of investor-state arbitration rights.